Future of Banking Will Now Depend on Both TechFin and FinTech Industries

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by Teuta Franjkovic · 5 min read
Future of Banking Will Now Depend on Both TechFin and FinTech Industries
Photo: Pixabay

FinTech is increasingly collaborating with traditional banking institutions, combining the innovative mindset of FinTech startups with the scale, strong brand recognition of traditional banking institutions. However, a new disruptive force is on the horizon: TechFin.

FinTechs and Techfins (Amazon, Apple, Facebook, Google, and Chinese giant, Alibaba) are increasingly targeting financial services. Some so-called “challenger banks” (Starling, Monzo, Varo) have not yet really challenged to a significant degree, but cannot be taken lightly.

What makes this particularly dangerous for traditional banks and credit unions is that next-generation consumer expectations have been set by these big technology companies, and many FinTechs, that offer highly personalized services and intuitive user experiences across all devices.

It seems that nowadays FinTech is shifting away from its roots in payments to become a data industry. Today, this shift focuses on the most fundamental principle of commerce: companies must understand their customers in order to serve them better.

As famous FinTech blogger and speaker Chris Skinner said:

“I liken it to fintech firms are making faster horses whereas techfin firms are working with airplanes.”

What Does This Mean?

It’s an obvious fact that there is a vast number of “unbanked” people in the world, which represent a ready-made user base for innovative financial products. On the other hand, there’s also the vulnerability of the business models of existing payment networks like Visa and Mastercard, whose transaction fees increase prices and potentially slow down innovation.

This is of main importance when speaking of the difference between FinTech and TechFin.

FinTech usually references an organization where financial services are delivered through a better experience using digital technologies to reduce costs, increase revenue and remove friction. Traditional mobile banking that is already implemented in Visa and Mastercard business now started to refer to more non-traditional financial offerings such as PayPal, Zelle and Venmo in the U.S. and digital-only Starling Bank, Monzo and Revolut in the U.K.

Many FinTech firms pick off low hanging fruit. For instance, Revolut provides highly convenient, mobile-friendly spot-rate foreign exchange, to better serve unbanked and underbanked households. The big TechFin companies offer financial products direct to their own vast networks of customers.

As it’s already known, the main appeal of FinTech is the opportunity to collect and analyze customer data. FinTech is, therefore, becoming a data industry. By data mining through FinTech, companies can get a better understanding of customers’ wants and needs. They can use those insights to launch new products or hone existing ones. They can also sell data to third parties, opening up entirely new revenue streams.

TechFin on the other hand usually references a technology firm that finds a better way to deliver financial products as part of a broader offering of services. The real growth may lay in the possibility of combining financial information with other types of data.

If we look at Southeast Asia as an example, we can see that startups there, have already amassed more data on Southeast Asian citizens and their habits than any census could provide because they offer convenient services for free or at a nominal fee.

As competition for markets and customers reaches a stalemate, Southeast Asian unicorns like are Grab, Go-Jek, Razor, and Sea, have expanded their payment options and absorbed FinTech companies, specifically payments companies. The top-level competitors have stretched into new other areas like on-demand beauty services and grocery deliveries. But payment technology has been an emphasis for these major players.

This is because every service ends with a transaction and broadens the amount of information that can be collected. For example, one business that started as a “pay-for’ride” company can now paint a clear picture of users’ movements, schedules, and even financial habits.

This opens doors for new products and services. In that way, such company can use their clients information collected through their FinTech products to create alternative credit ratings, which could then be tied to, let’s say, banking products. For example, in Singapore, Go-Jek has made the leap into credit: its partner Findaya started testing a credit option that allows users to repay at a later date.

Demand for TechFin Products and Services Will Keep Increasing

Banks are on the top of the ladder and thinking about stepping down. Meanwhile, mobile network operators (MNOs) and internet giants like Alibaba and Amazon are at the bottom of the ladder and stepping up. At some point, the two will meet in the middle and create a new bank that is digital based upon the internet of things and driven by the telecommunications network.

It is expected that demand for products and services from both TechFin and FinTech firms will only increase as more consumers become familiar with new digital offerings. This is especially true for younger consumers, who have grown up with digital devices.

While they are agile, most FinTech firms are relatively small and focused on a single service. They are also lightly regulated under e-money compliance guidelines. The big tech firms, on the other hand, might cause more problems for traditional banking providers — with new kinds of internet finance not seen before. If you have the technology, the customer data, and the reach of a Silicon Valley giant, you can reinvent entire categories.

Collaboration is a natural way for banks and FinTech firms to leverage each other’s strengths, although culture is always going to be a challenge when an agile innovator comes together with a slow-moving incumbent.

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Teuta Franjkovic

Experienced creative professional focusing on financial and political analysis, editing daily newspapers and news sites, economical and political journalism, consulting, PR and Marketing. Teuta’s passion is to create new opportunities and bring people together.

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